UK opposition threatens deal on bank capital rules

The fight over revising bank capital rules will again take centre stage when the 27 finance ministers of the European Union meet in Brussels on Tuesday (15 May).

Despite an extra meeting that lasted into the early hours of 3 May, the ministers were unable to reach a deal on an issue that is becoming increasingly bitter and again leaves the UK at odds with the rest of the EU over an important piece of financial legislation.

By the end of last week’s meeting, the UK was the only country that opposed a compromise text presented to ministers by officials from Denmark, which holds the rotating presidency of the Council of Ministers. According to the latest draft, member states would have some leeway to impose tougher requirements on banks if they believed that the economic situation necessitated it, but they would first have to get approval from the European Commission.

Capital levels

The British government is determined to safeguard its flexibility to raise the level of capital that banks must hold, maintaining that bank failure would damage its economy and force its own taxpayers to foot the bill.

The capital-requirements directive and regulation proposals – which form the EU’s response to the globally agreed Basel III banking rules – would limit this flexibility by introducing the concept of ‘maximum harmonisation’ across the EU.

George Osborne, the British finance minister, left last week’s talks saying that it would be “idiotic” to approve the new rules and raised concerns that they contained too many loopholes to meet Basel requirements.

Officials believe that next week’s meeting offers finance ministers their last chance to agree, after months of wrangling between member states.

Technically, the UK could simply be out-voted – member states’ collective approach can be decided by qualified majority voting – but EU officials and other member states want to avoid this, not least because of the signal it might send to the rest of the world about the EU’s implementation of the Basel III rules.

Commission sources say that the UK has never before voted against a major piece of EU financial legislation, and privately EU officials say that they are “optimistic” that a deal can be reached.

The day before the finance ministers meet, the European Parliament’s economic and monetary affairs committee is scheduled to hold its much delayed vote on the draft law. Member states must reach agreement with the Parliament before the regulation and directive can become law.

Rating rotation

The finance ministers will also discuss the latest negotiations on a new law to clamp down on credit-rating agencies.

At their last meeting on the issue, on 31 March, several finance ministers spoke out against the ‘rotation rule’, which would force companies that are credit-rated regularly to change the agency from which they seek a rating. Danish officials have proposed a watered-down text that would see the rotation required apply to a smaller number of companies.

Finance ministers from the eurozone countries will meet on Monday (14 May) and discuss the impact on the eurozone of political instability in Greece and the possibility that a new Greek government will seek to re-negotiate the terms of its bail-out. They will also look at the latest economic position of Spain, where the government has announced a bail-out of Bankia, the country’s third-largest bank.